Another thought: What is the best way to make money right now in energy? Hint: (What's the lowest priced commodity right now, which cannot keep on being under-priced?) Maybe that's what we should be discussing today--which GAS companies to buy, and how soon.

I find the whole idea of NG companies being the "best way to make money right now" more than a little simplistic. I'll grant you, using the traditional BOE conversion ratio comparing ng with oil the opportunity looks like a no brainer. It is also a no brainer IMO that ultimately "low prices are the cure for low prices" but neither of these by themselves or combined equates automatically to a good let alone "best" opportunity. I'll let Dan speak for himself, but I suspect his inclusion of "when and who" in the above statement indicates he understands this but as a generic thesis I hear this a lot from a awful lot of investors.

Some have been making this same argument for three years and the simple fact of the matter is they have been wrong. Even if you assume the bottom is near for ng prices, to assume the recovery in prices will be of a sufficient enough nature to make investing in the producers the "best" choice is potentially a very big stretch.

For many of these companies my personal opinion is their share price currently reflects a fair amount of optimism about the future direction of ng prices i.e if prices don't recover soon enough, or high enough and this optimism wanes share prices could easily go even lower. In others IMO the theme of companies getting oilier or moving to ngls as a solution to the producers problems is in itself subject to it's own version of the potential misplaced optimism on the part of some investors. This transition, if it was as simple as some investors appear to believe, would have taken place a long time ago. The truth is a little more nuanced than this and involves pesky little details like oil & ngls also being commodities that are themselves commodities subject to price risk and require large capital investments that in most cases take a significant amount of time to become cash flow positive.

For me this isn't a matter of trying to predict the future of ng prices (something I clearly can't do) but rather considering investment alternatives using various pricing assumptions for oil, ngls % ng. If I can find a pure play oil company who's share price is reflecting $80 oil and yet their IRR (assuming $80 oil prices) would exceed the IRR of a ng producer even if ng prices doubled ($4 mmcf) why in the world would I take the chance on the ng producer?

We all have to make our own decisions and clearly I may end up being wrong but I can think of at least two themes in the energy patch that I prefer much more than the theme of a recovery in the price of NG.

1. Look for pure play oil producers who due to sector weakness are unfairly being beat up, due in part to the fact that many "oil companies" still have significant exposure to ng and may somewhat deserve to be under pressure. IMO the same doesn't apply to a pure play oil producers and yet the market never seems to care i.e. market inefficiency at its finest. (It's the sector stupid)

2. Instead of speculating on the theme of a recovery in NG look instead for opportunities surrounding the closing of the price discount between regional & world prices. Never mind the headline WTI to Brent discount if you look below the headlines you see places like Canada & the Bakken receiving even lower prices. In the case of ng prices the producers fates are pretty much beyond their control at least beyond making the decision to curtail production. (Dammed if they do and dammed if they don't) With the huge arbitrage between local, regional & world oil prices not only the producers but other interested parties (railroads & pipelines, storage providers) are scurrying to correct the problem. Although these problems can't be solved over night (especially with the ever increasing production coming from these same areas) the certainty of outcome vs. what and when will happen with ng is not even in the same ballpark.

A peek at some local oil prices. (They were a lot lower a few weeks ago)

http://crudeoilpostings.semgroupcorp.com/

Best way to make money?

B